Are you considering converting to an Academy next April. If you are you may need to watch out for a potential problem that experience has shown can be a great source of frustration for your employees.
Are you considering converting to an Academy next April. If you are you may need to watch out for a potential problem that experience has shown can be a great source of frustration for your employees.
The problem is peculiar to April conversions as that date coincides with the tax year end. Typically, your employees will be used to receiving a P60 at the end of each year. In fact the p60 is sometimes the only pay advice that they retain and is still often requested by employees particularly if they also have tax returns or are looking for proof of earnings for mortgage purposes.
The problem revolves around the fact that as an Academy you become a new legal entity and therefore a new employer requiring a new PAYE scheme. The mechanism for moving an employee from one PAYE scheme to another is through the raising of a P45 and then adding that employee as a new starter on the new PAYE scheme. The meaning of a P45 is often misunderstood and emotive. P45’s are often seen by employees as something to do with redundancies.
Because they are emotive many employers choose not to issue employees with the P45 instead they communicate (as is allowed) with employees telling then about the change.
Now for the problem. If you convert after your March salaries have been paid but before 5 April you will need to go through that P45 process. The unintended consequence here is that once a P45 has been raised you can no longer validly produce the P60 that employees expect. Employment under that PAYE scheme has ended and as at 5 April they are no longer due a P60.
The employee becomes a member of the new PAYE scheme for the Academy but as you are unlikely to be running a payroll until after 5 April the employee has no earnings in the tax year in the new employment and again no P60 is due.
Employees in this situation end up in limbo with no facility to have a P60. The position becomes worse if you are also changing payroll provider too. The old provider will want to lose the employees off the payroll as soon as possible.
However, a simple plan can avoid this pitfall. Ensure that P45s are not produced until after 5 April. That way employees are still on the old scheme at the tax year end and are due.
If you want to talk to us about Academy conversions or practical advice on steps you should take to make sure the payroll aspects of your Academy conversion go smoothly please contact one of our Education Payroll Experts